State Street Eliminates 400 Jobs in Fourth Round of Cuts

State Street Corp. (STT) is eliminating
400 jobs in the fourth round of cuts since 2010 as the third-largest custody bank seeks to reduce expenses to combat the
impact of low interest rates.

The measure, on top of 2,900 job cuts since November 2010,
will result in $22 million in savings in 2014, the Boston-based
company said today. Severance expenses of $72 million pushed
first-quarter net income 22 percent lower to $356 million, or 81
cents a share, State Street said.

“The environment for the custody banks is continuing to
take out revenue and they just can’t really continue to wait on
interest rates to go higher,” Marty Mosby, an analyst with
Guggenheim Securities LLC in Hernando, Mississippi, said in a
telephone interview. “State Street started this process about a
year ahead of everyone else, and so they got to the end of their
previous initiatives ahead of the others.”

State Street has relied over the past three years on a
combination of cost cutting and global equity-market gains to
overcome the negative impact of low interest rates. The U.S.
Federal Reserve has held its benchmark interest rate at zero to
0.25 percent since December 2008 in an attempt to stimulate
borrowing and economic growth. Low rates hurt the ability of
custody banks to earn money on lending and investing activities.

Excluding some costs such as the severance expenses, State
Street’s operating basis net income was 99 cents a share,
missing the $1 a share estimate of 20 analysts surveyed by
Bloomberg.

Shares Fall

State Street declined 2.6 percent to $64.04 at 10:52 a.m.
in New York trading. The shares had slumped 10 percent this year
through yesterday, the most among the three biggest U.S. custody
banks. BNY Mellon declined 3.8 percent this year through the
same period and Northern Trust fell 2.7 percent.

The Standard & Poor’s 500 Index of large U.S. stocks
advanced 1.3 percent during the quarter and jumped 19 percent in
the year ended March 31.

That helped boost assets under custody by 13 percent from a
year earlier, and by 2.9 percent in the quarter, to $21
trillion. The amount of money State Street invests for clients
rose 9.4 percent from a year earlier, and by 1.5 percent in the
quarter, to $2.38 trillion. The asset management unit gathered
$4 billion in net deposits in the quarter, Chief Executive
Officer Joseph Hooley said in the conference call with analysts.

Higher assets helped lift revenue 2 percent to $2.49
billion. The increase was held back by a drop in trading
services revenue. Expenses increased 11 percent to $2.03 billion
from a year earlier, driven largely by the severance costs. Net
interest revenue declined 3.6 percent to $555 million.

‘Constrained’ Environment

State Street said in March it planned to increase its
quarterly dividend to 30 cents a share from 26 cents after the
Fed approved its capital plan for 2014. The company also said it
would reduce its stock buybacks in the year through March 2015
to $1.7 billion from $2.1 billion in the previous 12 months.

Bank of New York Mellon Corp., the world’s largest custody
bank, said on April 22 its first-quarter profit was $661
million, after a $266 million loss a year earlier. Chicago-based
Northern Trust, the third-largest independent custody bank, said
on April 15 its net income for the period increased 11 percent
from a year earlier.